Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Becton, Dickinson and Company for the period ended June 30, 1998. The company operates in the medical supplies, devices, and diagnostic systems sectors. The reporting period covers the third quarter and the first nine months of fiscal year 1998.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1998 | Nine Months Ended June 30, 1998 |
|---|---|---|
| Revenues | $833.6 million | $2,273.6 million |
| Net Income (Loss) | $(10.0) million | $146.7 million |
| Diluted EPS | $(0.09) | $1.12 |
| Operating Income | $8.3 million | $255.9 million |
| Cash from Operations (9mo) | $361.1 million | |
| Total Debt (Short + Long Term) | $1,212.8 million | |
| Cash and Equivalents | $103.4 million | |
| Debt-to-Capital Ratio | 44.6% |
Material Changes vs. Prior Period
- Revenue Growth: Q3 revenues increased 18% year-over-year to $833.6 million. Nine-month revenues rose 10% to $2.27 billion. Growth was driven by acquisitions, particularly the Medical Devices Division (MDD) of The BOC Group, and organic growth, partially offset by a stronger U.S. dollar.
- Profitability Decline: Q3 operating income dropped from $105.1 million to $8.3 million, and the company reported a net loss of $10.0 million compared to $70.1 million in the prior year. This was primarily due to $90.9 million in special charges (restructuring and asset write-downs) and acquisition-related costs.
- Acquisition Impact: The April 1998 acquisition of MDD added approximately $40 million to Q3 revenues but included a $30 million charge for purchased in-process R&D and $15 million in integration costs.
- Debt Increase: Total debt rose to $1.213 billion from $798 million a year ago, largely to finance recent acquisitions.
Guidance, Outlook, and Risks
- Adjusted Performance: Management notes that excluding the acquisition and restructuring charges, Q3 operating margin would have been 18.7% (up from 17.0% prior year) and adjusted diluted EPS would have been $0.73.
- Capital Expenditures: Expected to be approximately $200 million for the full fiscal year.
- Year 2000 Compliance: The company expects to spend $6 million to $10 million to remediate computer systems for the Year 2000 issue, with completion targeted for mid-1999. Costs are not expected to materially affect results.
- Legal Contingencies: The company is a defendant in 161 product liability lawsuits regarding natural rubber latex gloves (divested in 1995). Management does not expect a material effect on financial position. A $345,000 penalty was settled with the NJ Department of Environmental Protection regarding a previously owned division.
- Corporate Actions: A two-for-one stock split was authorized in July 1998. Additionally, $200 million in 6.70% Debentures were issued in July 1998 to repay commercial paper.
Investor Verification Checklist
- Verify the sustainability of revenue growth excluding the one-time impact of the MDD acquisition.
- Confirm the timeline and cost certainty of the $90.9 million restructuring plan and its expected completion by end of 1999.
- Monitor the impact of the increased debt load ($1.2 billion) on interest expenses and liquidity ratios.
- Assess the progress of Year 2000 remediation and potential third-party risks from suppliers/customers.
- Review the status of the 161 latex glove liability lawsuits to ensure no material changes in exposure.